Federal Department of Finance FDF

Background documentation

Date:

02.11.2016

Reduction of barriers to market entry for fintech firms

1. Background
Everyone is talking about digitisation and it has been swirling around in the world of finance
too for the past few years. Examples of digital financial technology (fintech) include:
-

Mobile payment systems

Virtual currencies

Online lending between private individuals (peer-to-peer lending)

All of these developments have the potential to challenge existing business models in the
financial sector and to accelerate structural change at least in the longer term.
Consequently, the speedy creation of innovation-friendly framework conditions is crucial.
On 20 April 2016, the Federal Council gave the FDF until autumn 2016 to examine whether
there was a need for regulatory action to reduce the barriers to market entry for providers of
innovative financial technologies (fintech firms).

2. Barriers to market entry identified

At present, fintech firms are affected by financial market regulation primarily in the areas of
banking law (BankA) and anti-money laundering law.
Under certain circumstances, even fintech firms that provide innovative payment services
(e.g. mobile payment applications for peer-to-peer payments) require a banking licence. In
addition, fintech firms that provide services in the area of blockchain technologies
(particularly traders, ATM operators and depositories for virtual assets and currencies) can
come under the scope of application of the BankA.
The BankA sets relatively high authorisation granting requirements, as such authorisation
is generally aimed at banking activity (deposit-taking and lending business) with the
corresponding risk exposure and need for regulation. Therefore, a banking licence in
accordance with the BankA is a considerable barrier to market entry for innovative fintech
firms that want to carry out only certain elements of banking.

Background documentation

Anti-money laundering and terrorist financing due diligence requirements are not fintechspecific barriers to market entry.

3. Key parameters for the new regulatory approach

An approach with three supplementary elements will be pursued, but no distinction will be
made between the specific business models with regard to their regulatory treatment,
thereby ensuring the approach is forward-looking.
The parameters set out below for regulatory adjustments in three sub-sectors form a
holistic concept. The specific regulatory simplifications should reduce the identified barriers
to market access for providers in the area of innovative financial technologies and increase
legal certainty for the affected financial service providers overall.

Swiss fintech model

Fintech model
Specific
regulatory
adjustments

(e.g.
timeframe of
60 days for
settlement
accounts for
crowdfunding)

Fintech
licence
Innovation area

(e.g. expansion
of sandbox)

(lower
regulatory
provisions
than for a
conventional
bank)

Swiss solution based on 3 pillars

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3.1.

Extension of the timeframe for settlement accounts

Under the Banking Ordinance (BankO), credit balances on client accounts of securities
dealers, precious metal traders, asset managers or any similar firms that solely serve the
purpose of the settlement of client transactions and on which no interest is paid are not
considered to be deposits (Art. 5 para. 3 lit. c of the BankO). This exception can apply also for
fintech firms, as determined by the Federal Council in its press release of 20 April 2016. In
accordance with its mandate, FINMA set a timeframe of seven days for such settlement
accounts. Because fundraising for a crowdfunding project usually last more than seven days,
the timeframe is too short for business models that temporarily hold money on own accounts.
In order to create legal certainty in this area, a timeframe of 60 days should be set for
settlement accounts at ordinance level (in Art. 5 para. 3 lit. c of the BankO). Because of the
principle of equal treatment, such an amendment would not be restricted to fintech firms, and
would instead be generally applicable for all players. Crowdfunding platforms that themselves
accept funds could benefit from an extended timeframe for settlement accounts. If they
accepted client funds only for the duration of that timeframe, they would not need a banking
licence for this activity or the authorisation to be created for financial technology institutions
(see section 4.3 below).
3.2.

Expansion of authorisation-exempt activity

Under current law, funds can be accepted from a maximum of 20 depositors without
authorisation being required. However, business models in the fintech area are generally
aimed at more than 20 people. A moderate expansion of the existing authorisation-exempt
activity would offer market entrants the possibility to check the conceptual and economic
efficiency of their business model within a limited framework before having to decide on
obtaining authorisation, for example.
In the future, a provider without a banking licence should be able to accept public funds
without restriction up to a total value of CHF 1 million. More extensive fund acceptance or
if more than 20 public depositors were involved would require a separate approval by Finma
(see para. 3.3).
In order to ensure transparency also in the authorisation-exempt area, providers should have
to inform their clients that their firm is not supervised by FINMA.
3.3.

Authorisation for financial technology institutions

A new authorisation category should be created for institutions that do not carry out typical
banking business but whose activity includes certain elements of banking. The business
models of the holders of such an authorisation are beyond the core activities characteristic of
the banking business and have a correspondingly lower risk profile.
The authorisation conditions and supervision can thus be less comprehensive than in the case
of conventional banking activity. Consequently, a new authorisation category should be
created for financial technology institutions that are restricted to the deposit-taking business
(acceptance of public funds) and thus do not operate in the lending business with maturity
transformation. This would have the following features: the public deposits accepted may not
exceed a total value of CHF 100 million. So long as protection of the individual client is
guaranteed by special conditions, FINMA can authorise a higher threshold. The deposits must
be held on one or more accounts in the name of the authorisation holder and may not be
invested or interest-bearing. For institutions in the new authorisation category, the minimum
capital is 5% of the accepted public funds, but no less than CHF 300,000. The capital can
be paid in cash or in kind. The 5% capital ratio not only includes a component for the
authorisation holder's operational risks, but also ensures moderate capital backing for liabilities
arising from the deposits accepted and allows this to grow alongside the authorisation holder's
sound financial, personnel and organisational resources.
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Background documentation

The new authorisation category significantly reduces the barriers to market entry for providers
in the area of cashless payment transactions, blockchain applications and crowdfunding
platforms.

4.

International developments

Regulations have been created or amended abroad too in the wake of the digitalisation in the
financial sector, whereby various objectives are pursued. Unlike the proposed Swiss approach,
rather business-specific regulatory approaches have been chosen in other countries up to now.
Within the EU, for example, Germany, France and the UK have specific national regulations
with regard to crowdfunding. Licensing and supervisory requirements particularly from an
investor protection viewpoint have been defined for the specific area of crowdfunding in these
countries.
Additionally, a regulatory sandbox was opened in the UK in May 2016, whereby firms can test
innovative products and services with the guidance of the supervisory authority. Singapore has
initiated a similar project and such a regulatory sandbox is being considered in the United
States too. In all three countries, the supervisory authorities decide on the inclusion (of a limited
number) of companies in the sandbox for a limited duration, and the companies are in close
contact with the relevant supervisory authority. Therefore, these sandboxes likewise differ
significantly from the Swiss approach of an authorisation-exempt area. The authorisationexempt area is open to all companies without supervisory authority guidance, authorisation
or conditions up to a maximum of CHF 1,000,000 in deposits.

5.

Conclusion

The proposed authorisation category will give rise to new business opportunities for
non-banks, together with lower compliance costs. Existing banks will have outsourcing
opportunities and clients will benefit from a wider range of financial services. The
expansion of authorisation-exempt activity will enable banks and non-banks alike to
test innovative business ideas within a limited framework without having to comply with
costly and time-consuming regulations. Thanks to the extension of the timeframe for
settlement accounts, the legal situation will be clarified and better conditions will be
created for crowdfunding investments.
In general, it can be said that a lowering of the barriers to market entry intensifies
competition and is thus likely to increase the pressure on financial service prices and
fees. The potential for the creation of additional value added and jobs will also be
greater with a more competitive and appealing financial centre.

6. Next steps
A consultation draft with the legislative amendments in line with the proposed parameters will
be prepared by January 2017. In this context, it is additionally necessary to examine the extent
to whether additional adjustments to the Consumer Credit law must be examined.
The FDF is also planning to carry out further investigations on reducing other barriers to market
entry for fintech firms. Clarification is needed with regard to the legal treatment of currencies
such as bitcoin and assets based on blockchain technology, for example. The Federal Council
is to receive a report on that by the end of 2017.

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Background documentation

Further details:

Beat Werder, Head of Communications, State

Secretariat for International Financial Matters SIF
Tel. +41 58 469 79 47, beat.werder@sif.admin.ch

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